Apple Bonds May Drive Electronic Bond Trading Boom, Tchir Says

Apple Inc.’s new bonds may prove a boon to electronic platforms, with the biggest corporate offering on record spurring trading at a time when dealer inventories were running dry, according to TF Market Advisors.

The company’s $17 billion sale of bonds this week, its first since 1996, may “turn out to be a watershed moment in the world of bond trading,” Peter Tchir, founder of the New York-based firm, wrote in a note to clients today. Trading in the Cupertino, California-based company’s bonds accounted for 3.8 percent of volume yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Apple is a well-known company “that has solved the problem of too small fragmented issues, at the exact time the dealer community is struggling to provide true liquidity,” he wrote. Because the debt issues were so big, he said, “there is a real shot to turn Apple into the first real electronically traded bond.”

Banks from Morgan Stanley, Goldman Sachs Group Inc., and UBS AG and money managers including Fidelity Investments are working on cheaper and more efficient trading through electronic systems. Networks run by firms from Group Inc. to MarketAxess Holdings Inc. threaten to siphon the revenue Wall Street makes from the difference between offers to buy and sell the securities.

The 21 primary dealers that trade with the Federal Reserve have reduced the amount of their own money they use to facilitate trading as the Dodd-Frank Act seeks to limit risk-taking. Corporate bond holdings at dealers are “potentially lower than originally believed,” making up only about 0.5 percent of the market, Barclays Plc credit strategists Jeffrey Meli and Bradley Rogoff wrote in a note to clients dated today, citing New York Fed data.

‘Remain Elevated’

“This suggests that transaction costs are likely to remain elevated and secondary trading volumes subdued relative to pre-crisis levels, given lower capacity for market making by dealers combined with growing demand for daily liquidity from corporate bond mutual funds,” they wrote.

Apple’s stock dropped as much as 44 percent from a record closing high of $702.10 on Sept. 19, partly on concern that the company may not quickly unveil blockbuster hits like the iPhone or iPad.

After falling to $390.53 on April 19, the shares recovered to $451.32 at 11:12 a.m. in New York.

The value of daily trading in Apple shares is greater than any stock in the S&P 500, based on a 20-day average compiled by Bloomberg. About 10 percent of U.S. volume comes from retail clients, according to Joseph Mecane, co-head of U.S. listing and cash execution at NYSE Euronext.

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